Allstate Corporation 2021 Form 10-K Summary
Business context and reporting period
Allstate reported for the fiscal year ended December 31, 2021. The company is primarily a U.S. and Canadian personal property-casualty insurer, offering auto, homeowners and other personal lines, with additional businesses in protection services, health and benefits, identity protection, roadside assistance, telematics and consumer protection plans.
- Reportable segments: Allstate Protection, Run-off Property-Liability, Protection Services, Allstate Health and Benefits, and Corporate and Other.
- Policies in force increased 9.8% to 190.9 million, including 148.4 million in Protection Services.
- Allstate completed the National General acquisition on January 4, 2021 and the SafeAuto acquisition on October 1, 2021.
- Allstate sold Allstate Life Insurance Company, Allstate Life Insurance Company of New York and certain affiliates during the fourth quarter; these operations are presented as discontinued operations.
Financial performance and condition
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Total revenue | $50.59 billion | $41.91 billion | +20.7% |
| Net income applicable to common shareholders | $1.49 billion | $5.46 billion | -72.8% |
| Diluted EPS | $4.96 | $17.31 | Down materially |
| Net income from continuing operations | $5.16 billion | $5.43 billion | -5.0% |
| Operating cash flow | $5.12 billion | $5.49 billion | Down modestly |
| Net investment income | $3.29 billion | $1.59 billion | +107.1% |
| Investments | $64.70 billion | $59.54 billion | +8.7% |
| Shareholders’ equity | $25.18 billion | $30.22 billion | -16.7% |
| Book value per diluted common share | $81.52 | $91.50 | -10.9% |
| Debt | $7.98 billion | $7.83 billion | +1.9% |
| Return on average common equity | 5.8% | 21.0% | Down 15.2 points |
Property-casualty premiums earned increased 13.9% to $42.22 billion, primarily from National General and higher Allstate homeowners premiums. Property-Liability underwriting income declined to $1.67 billion from $4.43 billion, while the combined ratio deteriorated to 95.9 from 87.6. Allstate Protection underwriting income declined 60.9% to $1.79 billion.
- Property-Liability catastrophe losses were $3.34 billion, compared with $2.81 billion in 2020.
- Auto and homeowners loss ratios increased because of higher claim frequency and severity, inflation, increased miles driven and adverse prior-year auto reserve reestimates.
- Protection Services adjusted net income increased to $179 million from $153 million.
- Allstate Health and Benefits adjusted net income increased to $208 million from $96 million, primarily because of National General’s group and individual health businesses.
- Pension and other postretirement remeasurement gains were $644 million.
- Net unrealized capital gains declined, producing a $2.65 billion after-tax reduction in other comprehensive income.
Cash flow, debt and liquidity
- Operating cash flow was $5.12 billion. Investing activities provided $510 million, including proceeds from the life-business dispositions; financing activities used $5.24 billion.
- Allstate repurchased 26.3 million common shares for $3.26 billion during 2021 and paid $885 million of common dividends and $114 million of preferred dividends.
- A $5 billion common-share repurchase authorization remained, with approximately $3.30 billion available at December 31, 2021; the program was expected to run through March 2023.
- Cash, U.S. government and agency securities, and public equity securities available for liquidation within one week totaled $13.27 billion. Estimated liquidity available within one quarter was $25.4 billion under normal market conditions.
- Parent-company deployable assets were $3.31 billion. Allstate had no borrowings under its $750 million revolving credit facility or commercial paper program.
- Debt-to-shareholders’ equity was 31.7%, compared with 25.9% in 2020. Debt-to-capital was 24.1%.
- Allstate Insurance Company’s statutory surplus was $18.43 billion and its authorized control level RBC was $2.90 billion at year-end.
Material changes versus the prior comparable period
- National General materially expanded independent-agent distribution, property-casualty premiums and health and benefits operations; SafeAuto added non-standard auto insurance exposure.
- The life and annuity dispositions generated $4.00 billion of proceeds, including a $1.25 billion pre-close dividend, but resulted in a $4.09 billion after-tax loss on disposition.
- Revenue growth was offset by substantially higher claims and expenses. Property-casualty claims and claims expense increased to $29.32 billion from $22.00 billion.
- Auto claim frequency rebounded as driving increased from pandemic-restricted levels, while repair, parts, labor, medical and used-vehicle costs increased severity.
- Net investment income benefited from strong performance-based results, particularly limited partnerships; management cautioned that these results can vary significantly.
- Fixed-income portfolio duration was reduced to 4.20 from 5.02 years to limit exposure to rising interest rates, although future reinvestment at lower yields is expected to pressure investment income.
Outlook, management commentary, risks and unusual items
Management stated that 2022 operating priorities would remain consistent with 2021: better serve customers, grow the customer base, achieve target returns on capital, proactively manage investments and build long-term growth platforms. The Transformative Growth strategy emphasizes broader distribution, digital capabilities, improved pricing and underwriting, lower costs, telematics and technology modernization.
- Allstate expects rate increases and claims-cost management to address inflationary auto and property loss trends, subject to regulatory approval and customer disruption considerations.
- The catastrophe reinsurance framework targets less than a 1% probability that annual aggregate hurricane, earthquake and wildfire losses, net of reinsurance, exceed $2.5 billion. The company anticipated completing its 2022 nationwide catastrophe program in the second quarter of 2022.
- Major risks include catastrophe and severe weather losses, climate change, inflation, claim-reserve uncertainty, adverse investment markets, reinsurance availability and counterparty risk, competition, technology execution, cybersecurity, privacy regulation and changing insurance rate regulation.
- Run-off Property-Liability net reserves were $1.42 billion, including asbestos, environmental and other long-tail exposures. Management noted that reserve outcomes may vary materially because of litigation, legal interpretation, claim development and reinsurance collectability.
- Management estimated the aggregate reasonably possible legal loss above recorded accruals for disclosed matters at zero to $135 million before tax, while noting that this estimate excludes matters for which a range cannot be estimated and is not a maximum loss exposure.
- The sale of the Northbrook headquarters was expected in 2022 for $232 million, subject to customary and governmental conditions.
- The filing states that COVID-19, supply-chain disruptions and labor shortages continued to affect driving patterns, claim costs, investment valuations, policy sales and customer utilization.
Most important facts for investors to verify
- Whether auto and homeowners rate actions are sufficient to offset inflation-driven claim severity and restore underwriting margins.
- The sustainability and volatility of the unusually strong 2021 performance-based investment income.
- Integration results, operating performance and reserve development from National General and SafeAuto.
- The adequacy of catastrophe reinsurance limits, retentions and pricing, including exposures to hurricanes, wildfires, wind and hail.
- Development of asbestos, environmental, auto liability and other reserves, including the $900 million estimated variability range for Allstate Protection reserves excluding catastrophe losses.
- Parent-company liquidity, subsidiary dividend capacity and compliance with debt, preferred-stock and subordinated-debt restrictions.
- Potential outcomes of regulatory proceedings, including the California auto-rating investigation and pending claims-related and securities litigation.
- The effect of the pending long-duration insurance accounting standard, scheduled for periods beginning after December 15, 2022; management did not expect a material impact based on the filing.